Fed’s July Beige Book Hints at Slight Economic Improvement, But Uncertainty and Price Pressures Persist

The Federal Reserve released its July Beige Book on Wednesday, offering a nuanced snapshot of an economy that has shown marginal improvement in recent weeks but remains under the weight of elevated uncertainty, soft consumer demand, and persistent price pressures. While the report has taken a back seat to the swirling political drama over President Trump’s rumored intent to fire Fed Chair Jerome Powell, it still carries weight as the central bank’s final published assessment before its July 29–30 policy meeting.

WATCH: InfraCap's Jay Hatfield discuss the Powell situation with AINvest's Adam Shapiro

Compared to the May Beige Book, which reported a slight decline in overall activity, July’s update showed a mild uptick in conditions. Five Districts reported modest growth, five noted flat activity, and only two cited declines—an improvement from May, when half the Fed’s Districts saw economic contraction. Still, uncertainty remains the dominant theme, with businesses and consumers showing continued caution in spending, hiring, and investment decisions.

Non-auto consumer spending softened in most regions, and auto sales also dipped modestly after surging earlier in the year as consumers tried to get ahead of tariffs. That early burst in vehicle buying appears to have run its course, contributing to the flat tone in retail. Tourism was mixed, and manufacturing slipped slightly. Nonfinancial services were largely unchanged, and construction activity cooled due to rising input costs in several regions. Home sales and nonresidential real estate activity remained flat, while agriculture continued to struggle. The energy sector posted a slight decline, and transportation was uneven.

The outlook has improved slightly from May, when only a handful of Districts reported any positive momentum. In the July edition, two Districts projected increases in activity, while most others expected either flat conditions or slight softening—a subtle but notable shift in tone.

Labor market commentary was cautiously optimistic. While May's report described employment as mostly flat and noted broad-based hiring hesitancy, the July Beige Book struck a slightly more positive note: one District reported modest job gains, six saw slight increases, three held steady, and two saw slight declines. Labor availability improved in several areas, with turnover rates declining and job applications rising—a shift many attributed to slowing wage growth and reduced churn.

Notably, several Districts mentioned growing shortages in skilled trades and a reduced pool of foreign-born workers, likely tied to recent changes in immigration policy. A few employers are reportedly turning to automation and AI investment as a longer-term solution to staffing constraints. Wage growth continued at a modest pace, in line with recent reports, and while layoffs remain limited, they were more common in manufacturing—where orders and output are under pressure.

One of the most persistent themes—both in July and May—was pricing pressure. The July report noted that prices increased across all Districts, with seven describing growth as moderate and five as modest. This is largely consistent with the prior edition, but with additional emphasis on input cost inflation linked to tariffs and insurance premiums. Businesses in all sectors reported continued pricing strain, particularly for raw materials used in manufacturing and construction.

While some firms have passed on these costs to consumers, others have opted to absorb them, citing rising customer price sensitivity. This has resulted in some margin compression, a dynamic that continues to weigh on profit expectations. Many contacts expect these cost pressures to persist through the summer, and several warned that more noticeable consumer price increases could materialize by late Q3.

In contrast to the drama over Powell’s possible firing, the Beige Book paints a picture of a Fed still deeply focused on the core fundamentals of inflation, growth, and employment. While financial markets remain distracted by the political noise, the Fed’s tone has not changed dramatically. Policymakers are seeing the same mixed signals that have defined much of 2024: an economy that isn’t overheating but isn’t collapsing either, inflation that is cooling but not yet at target, and a labor market that is bending, not breaking.

Importantly, there’s no sign in the report that would justify a policy move at the upcoming July 30 meeting, and markets continue to expect the Fed to hold steady. Bond yields reflected that assumption, with the 10-year Treasury hovering just under the key 4.50% level—a line that traders are watching closely as a signal of how seriously markets are taking the Powell rumors and underlying inflation dynamics.

The Fed’s July Beige Book won’t dominate headlines like the Powell saga, but it serves as an essential backdrop to next week’s policy meeting. The tone is slightly more upbeat than May, but uncertainty—whether driven by tariffs, politics, or global conditions—continues to cast a long shadow. If the Fed does anything on July 30, it’s more likely to be a change in language than a shift in rates. And as this week’s reaction to Powell rumors showed, the real market risk may lie less in data than in perception.